HEWLETT PACKARD CO, 10-Q/A, 2000-09-13

HEWLETT PACKARD CO
10-Q/A, 2000-09-13
COMPUTER & OFFICE EQUIPMENT

Previous: GERBER SCIENTIFIC INC, 10-Q, EX-27, 2000-09-13

Next: WYANT CORP, SC 13D/A, 2000-09-13

<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

------------------------

FORM 10-Q

(MARK ONE)

<TABLE>
<C> <S>
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934.
</TABLE>

FOR THE QUARTERLY PERIOD ENDED JULY 31, 2000
OR

<TABLE>
<C> <S>
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934.
</TABLE>

FOR THE TRANSITION PERIOD FROM ______________ TO ______________

COMMISSION FILE NUMBER: 1-4423

------------------------

HEWLETT-PACKARD COMPANY

(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C>
DELAWARE 94-1081436
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)

3000 HANOVER STREET, PALO ALTO, 94304
CALIFORNIA (Zip Code)
(Address of principal executive
offices)
</TABLE>

(650) 857-1501
(Registrant's telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last
report)

------------------------

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

<TABLE>
<CAPTION>
CLASS OUTSTANDING AT JULY 31, 2000
----- ----------------------------
<S> <C> <C>
Common Stock, $0.01 par value 989 million shares
</TABLE>

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
INDEX

<TABLE>
<CAPTION>
PAGE
NO.
-----
<S> <C> <C> <C>
Part I. Financial Information

Item 1. Financial Statements.

Consolidated Condensed Statement of Earnings
Three and Nine months ended July 31, 2000 and 1999
(Unaudited)................................................. 3

Consolidated Condensed Balance Sheet
July 31, 2000 (Unaudited) and October 31, 1999.............. 4

Consolidated Condensed Statement of Cash Flows
Nine months ended July 31, 2000 and 1999 (Unaudited)........ 5

Notes to Consolidated Condensed Financial Statements
(Unaudited)................................................. 6-13

Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Unaudited)....................... 14-24

Item 3. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 24

Part II. Other Information..................................................... 25

Item 6. Exhibits and Reports on Form 8-K............................ 25

Signature........................................................................ 26

Exhibit Index.................................................................... 27-29
</TABLE>

2
<PAGE>
ITEM 1. FINANCIAL STATEMENTS.

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENT OF EARNINGS

(UNAUDITED)

(IN MILLIONS EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JULY 31, JULY 31,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net revenue:
Products.............................................. $ 9,923 $ 8,745 $30,116 $26,346
Services.............................................. 1,895 1,573 5,403 4,662
------- ------- ------- -------
Total net revenue................................... 11,818 10,318 35,519 31,008
Costs and expenses:
Cost of products sold and services.................... 8,308 7,251 25,252 21,618
Research and development.............................. 663 619 1,941 1,828
Selling, general and administrative................... 1,755 1,661 5,392 4,783
------- ------- ------- -------
Total costs and expenses............................ 10,726 9,531 32,585 28,229
------- ------- ------- -------
Earnings from operations................................ 1,092 787 2,934 2,779
Interest income and other, net.......................... 276 204 649 547
Interest expense........................................ 60 45 156 137
------- ------- ------- -------
Earnings from continuing operations before taxes........ 1,308 946 3,427 3,189
Provision for taxes..................................... 279 250 788 845
------- ------- ------- -------
Net earnings from continuing operations................. 1,029 696 2,639 2,344
Net earnings from discontinued operations............... 17 157 136 387
------- ------- ------- -------
Net earnings............................................ $ 1,046 $ 853 $ 2,775 $ 2,731
======= ======= ======= =======

Net earnings per share--Continuing operations:(1)
Basic................................................. $ 1.04 $ 0.69 $ 2.65 $ 2.32
Diluted............................................... $ 0.99 $ 0.66 $ 2.55 $ 2.24

Net earnings per share--Discontinued operations:(1)
Basic................................................. $ 0.02 $ 0.15 $ 0.14 $ 0.38
Diluted............................................... $ 0.02 $ 0.15 $ 0.13 $ 0.37

Net earnings per share--Total:(1)
Basic................................................. $ 1.06 $ 0.84 $ 2.79 $ 2.70
Diluted............................................... $ 1.01 $ 0.81 $ 2.68 $ 2.61

Cash dividends declared per share(1).................... $ 0.32 $ 0.32 $ 0.64 $ 0.64

Average number of shares and share equivalents:(1)
Basic................................................. 988 1,010 993 1,011
Diluted............................................... 1,045 1,056 1,043 1,054
</TABLE>

------------------------

(1) The share and per-share amounts do not reflect the planned two-for-one
stock split in the form of a stock dividend discussed in Note 9 to these
consolidated condensed financial statements.

The accompanying notes are an integral part of these consolidated condensed
financial statements.

3
<PAGE>
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEET

(IN MILLIONS EXCEPT PAR VALUE AND NUMBER OF SHARES)

<TABLE>
<CAPTION>
JULY 31, 2000 OCTOBER 31, 1999
------------- ----------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 4,842 $ 5,411
Short-term investments.................................... 210 179
Accounts receivable....................................... 5,640 5,958
Financing receivables..................................... 2,121 1,889
Inventory................................................. 5,563 4,863
Other current assets...................................... 3,537 3,342
------- -------
Total current assets.................................... 21,913 21,642
------- -------
Property, plant and equipment (less accumulated depreciation
of $4,904 at July 31, 2000 and $4,587 at October 31,
1999)..................................................... 4,398 4,333
Long-term investments and other assets...................... 6,146 5,789
Net assets of discontinued operations....................... -- 3,533
------- -------
Total assets............................................ $32,457 $35,297
======= =======

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and short-term borrowings................... $ 1,625 $ 3,105
Accounts payable.......................................... 4,404 3,517
Employee compensation and benefits........................ 1,440 1,287
Taxes on earnings......................................... 1,211 2,152
Deferred revenues......................................... 1,737 1,437
Other accrued liabilities................................. 3,189 2,823
------- -------
Total current liabilities............................... 13,606 14,321
------- -------

Long-term debt.............................................. 3,390 1,764
Other liabilities........................................... 850 917

Stockholders' equity:
Preferred stock, $0.01 par value (300,000,000 shares
authorized; none issued)................................ -- --
Common stock, $0.01 par value (4,800,000,000 shares
authorized; 988,695,000 issued and outstanding at July
31, 2000, and 1,004,569,000 shares issued and
outstanding at October 31, 1999)(1)..................... 10 10
Additional paid-in capital................................ 415 --
Retained earnings......................................... 14,135 18,285
Accumulated other comprehensive income.................... 51 --
------- -------
Total stockholders' equity.............................. 14,611 18,295
------- -------

Total liabilities and stockholders' equity.............. $32,457 $35,297
======= =======
</TABLE>

------------------------

(1) The share amounts do not reflect the planned two-for-one stock split in the
form of a stock dividend discussed in Note 9 to these consolidated
condensed financial statements.

The accompanying notes are an integral part of these consolidated condensed
financial statements.

4
<PAGE>
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS

(UNAUDITED)

(IN MILLIONS)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
JULY 31,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net earnings from continuing operations................... $2,639 $ 2,344
Adjustments to reconcile net earnings from continuing
operations to net cash provided by operating activities:
Depreciation and amortization........................... 1,059 965
Deferred taxes on earnings.............................. 291 583
Change in assets and liabilities:
Accounts and financing receivables.................... (321) (467)
Inventory............................................. (709) (348)
Accounts payable...................................... 886 220
Taxes on earnings..................................... (684) (1,333)
Other current assets and liabilities.................. (22) 162
Other, net............................................ (338) 230
------ -------
Net cash provided by operating activities............. 2,801 2,356
------ -------
Cash flows from investing activities:
Investment in property, plant and equipment............... (1,197) (757)
Disposition of property, plant and equipment.............. 284 307
Purchases of investments.................................. (719) (901)
Maturities and sales of investments....................... 851 965
Other, net................................................ (140) (101)
------ -------
Net cash used in investing activities................. (921) (487)
------ -------
Cash flows from financing activities:
Increase (decrease) in notes payable and short-term
borrowings.............................................. (1,338) 1,528
Issuance of long-term debt................................ 1,883 245
Payment of long-term debt................................. (355) (854)
Issuance of common stock under employee stock plans....... 659 548
Repurchase of common stock................................ (3,781) (891)
Dividends................................................. (481) (488)
------ -------
Net cash provided by (used in) financing activities... (3,413) 88
------ -------
Net cash provided by discontinued operations................ 964 49

Increase (decrease) in cash and cash equivalents............ (569) 2,006
Cash and cash equivalents at beginning of period............ 5,411 4,046
------ -------
Cash and cash equivalents at end of period.................. $4,842 $ 6,052
====== =======
</TABLE>

The accompanying notes are an integral part of these consolidated condensed
financial statements.

5
<PAGE>
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1: BASIS OF PRESENTATION

In the opinion of management, the accompanying consolidated condensed
financial statements contain all adjustments (consisting only of normal
recurring adjustments) necessary to present fairly the financial position as of
July 31, 2000 and October 31, 1999, the results of operations for the three- and
nine-month periods ended July 31, 2000 and 1999, and the cash flows for the
nine-month periods ended July 31, 2000 and 1999.

The results of operations for the three- and nine-month periods ended
July 31, 2000 are not necessarily indicative of the results to be expected for
the full year. The information included in this Form 10-Q should be read in
conjunction with Management's Discussion and Analysis of Financial Condition and
Results of Operations and the consolidated financial statements and notes
thereto included in the Hewlett-Packard Company 1999 Annual Report on
Form 10-K.

The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

NOTE 2: DISCONTINUED OPERATIONS

On March 2, 1999, Hewlett-Packard Company (HP) announced its intention to
launch a new company, subsequently named Agilent Technologies, Inc. (Agilent
Technologies), through a distribution of Agilent Technologies common stock to
HP's stockholders in the form of a tax-free spin-off. Agilent Technologies is
composed of HP's former Measurement Systems Organization, which included the
test-and-measurement, semiconductor products, chemical analysis and healthcare
solutions businesses. Effective July 31, 1999, HP's management and Board of
Directors completed the plan of disposition for Agilent Technologies. HP's
consolidated condensed financial statements for all periods present Agilent
Technologies as a discontinued business segment in accordance with Accounting
Principles Board Opinion No. 30.

HP distributed substantially all of its remaining interest in Agilent
Technologies through a stock dividend to HP stockholders on June 2, 2000,
resulting in the elimination of the net assets of discontinued operations and a
$4.2 billion reduction of retained earnings. The decrease in the intrinsic value
of HP's employee stock plans attributable to the distribution of Agilent
Technologies was restored in accordance with the methodology set forth in the
Financial Accounting Standards Board (FASB) Emerging Issues Task Force Issue
90-9, "Changes to Fixed Employee Stock Option Plans as a Result of Equity
Restructuring."

Net earnings from discontinued operations for the nine months ended
July 31, 2000 was $136 million. Of this $136 million, net earnings of Agilent
Technologies for the period from July 31, 1999 through the June 2, 2000 spin-off
date totaled $287 million (net of related tax expense of $174 million), and the
net costs to effect the spin-off were $151 million (net of related tax benefit
of $23 million). Net earnings from

6
<PAGE>
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

NOTE 2: DISCONTINUED OPERATIONS (CONTINUED)
discontinued operations for the third quarter and first nine months of fiscal
1999 consisted only of the net earnings of Agilent Technologies.

NOTE 3: ENHANCED EARLY RETIREMENT PROGRAM

In March 2000, HP offered 2,500 United States employees the opportunity to
retire early and receive an enhanced payout. The purpose of the enhanced early
retirement program was to balance the work force based on HP's long-term
business strategy. All employees who were offered the right to participate in
the program were required to accept the offer by April 20, 2000, and
approximately 1,300 employees accepted the offer. In the second quarter of
fiscal 2000, the cost of the enhanced payout of approximately $100 million was
recorded upon employee acceptance of the offer. This charge consisted of
approximately $37 million classified as cost of products sold and services and
approximately $63 million classified as operating expenses ($16 million in
research and development expense and $47 million in selling, general and
administrative expense). In the third quarter of fiscal 2000, HP realized
related pension settlement gains of approximately $17 million as the pension
obligations to employees were fully settled. Additional pension settlement gains
of approximately $11 million are expected to be realized in the fourth quarter
of fiscal 2000.

NOTE 4: RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities." This
statement establishes accounting and reporting standards for derivative
instruments and requires recognition of all derivatives as assets or liabilities
in the statement of financial position and measurement of those instruments at
fair value. The statement, as amended, is effective for fiscal years beginning
after June 15, 2000. HP will adopt the standard no later than the first quarter
of fiscal year 2001. We expect that this adoption will not have a material
impact on our consolidated financial statements.

In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements." The
staff accounting bulletin is effective no later than the fourth quarter of HP's
fiscal year 2001. HP is in the process of determining the impact that adoption
will have on our consolidated financial statements.

NOTE 5: EARNINGS PER SHARE

HP's basic earnings per share (EPS) is calculated based on net earnings
available to common stockholders and the weighted-average number of shares
outstanding during the reporting period. Diluted EPS includes additional
dilution from the potential issuance of common stock, such as stock issuable
pursuant to the exercise of stock options outstanding and the conversion of
debt. The share and per-share

7
<PAGE>
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

NOTE 5: EARNINGS PER SHARE (CONTINUED)
amounts presented below do not reflect the planned two-for-one stock split in
the form of a stock dividend discussed in Note 9 to these consolidated condensed
financial statements.

<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED JULY 31, ENDED JULY 31,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
(IN MILLIONS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Numerator:
Net earnings from continuing operations................... $1,029 $ 696 $2,639 $2,344
Adjustment for interest expense, net of income tax
effect.................................................. 8 5 22 16
------ ----- ------ ------
Net earnings from continuing operations, adjusted......... 1,037 701 2,661 2,360
Net earnings from discontinued operations................. 17 157 136 387
------ ----- ------ ------
Net earnings, adjusted.................................... $1,054 $ 858 $2,797 $2,747
====== ===== ====== ======

Denominator:
Weighted-average shares outstanding....................... 988 1,010 993 1,011
Effect of dilutive securities:
Dilutive options........................................ 42 35 35 32
Zero-coupon subordinated convertible notes due 2017..... 15 11 15 11
------ ----- ------ ------
Dilutive potential common shares........................ 57 46 50 43
------ ----- ------ ------
Weighted-average shares and dilutive potential common
shares.................................................. 1,045 1,056 1,043 1,054
====== ===== ====== ======

Net earnings per share--Continuing operations:
Basic..................................................... $ 1.04 $0.69 $ 2.65 $ 2.32
Diluted................................................... $ 0.99 $0.66 $ 2.55 $ 2.24

Net earnings per share--Discontinued operations:
Basic..................................................... $ 0.02 $0.15 $ 0.14 $ 0.38
Diluted................................................... $ 0.02 $0.15 $ 0.13 $ 0.37

Net earnings per share--Total:
Basic..................................................... $ 1.06 $0.84 $ 2.79 $ 2.70
Diluted................................................... $ 1.01 $0.81 $ 2.68 $ 2.61

Average number of shares and share equivalents:
Basic..................................................... 988 1,010 993 1,011
Diluted................................................... 1,045 1,056 1,043 1,054
</TABLE>

NOTE 6: INCOME TAXES

Income tax provisions for interim periods are based on estimated effective
annual income tax rates. The effective income tax rate varies from the U.S.
federal statutory income tax rate primarily because of variations in the tax
rates on foreign income.

8
<PAGE>
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

NOTE 7: MARKETABLE EQUITY INVESTMENTS

Investments in marketable equity securities are considered
available-for-sale and are carried at market value, with unrealized gains and
losses, net of tax, included in accumulated other comprehensive income as a
component of stockholders' equity. Marketable equity securities totaling
$230 million were included in long-term investments and other assets at
July 31, 2000. Proceeds from sales of marketable equities were $26 million in
the third quarter and $73 million for first nine months of fiscal 2000, and
realized gains on sales of marketable equities were $24 million for the third
quarter and $69 million in the first nine months of fiscal 2000. The specific
identification method is used to account for gains and losses on marketable
equity securities.

NOTE 8: INVENTORY

<TABLE>
<CAPTION>
JULY 31, OCTOBER 31,
2000 1999
-------- -----------
(IN MILLIONS)
<S> <C> <C>
Finished goods........................................... $3,940 $3,581
Purchased parts and fabricated assemblies................ 1,623 1,282
------ ------
$5,563 $4,863
====== ======
</TABLE>

NOTE 9: STOCK SPLIT

On August 16, 2000, HP's Board of Directors approved a two-for-one stock
split, in the form of a stock dividend, which will result in the issuance on
October 27, 2000 of one additional share of HP common stock for every share of
common stock outstanding to stockholders of record as of the close of business
on September 27, 2000. The par value of HP's common stock after the stock split
will remain $0.01 per share, and additional paid-in capital will be reduced by
the par value of the additional shares issued. The stock split will not affect
the currently declared dividend of $0.16 per share (on a pre-split basis)
payable on October 11, 2000 to stockholders of record on September 20, 2000.

9
<PAGE>
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

NOTE 9: STOCK SPLIT (CONTINUED)
Following is a summary of pro forma basic and diluted net earnings per share
for the periods indicated, as if the two-for-one stock split, in the form of a
stock dividend, declared on August 16, 2000 were now effective:

<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED JULY 31, ENDED JULY 31,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Pro forma net earnings per share--Continuing operations:
Basic..................................................... $0.52 $ 0.34 $1.33 $1.16
Diluted................................................... $0.50 $ 0.33 $1.28 $1.12
Pro forma net earnings per share--Discontinued operations:
Basic..................................................... $0.01 $ 0.08 $0.07 $0.19
Diluted................................................... $0.01 $ 0.08 $0.06 $0.18
Pro forma net earnings per share--Total:
Basic..................................................... $0.53 $ 0.42 $1.40 $1.35
Diluted................................................... $0.51 $ 0.41 $1.34 $1.30
Pro forma average number of shares and share equivalents:
Basic..................................................... 1,975 2,021 1,987 2,022
Diluted................................................... 2,089 2,111 2,086 2,108
</TABLE>

NOTE 10: STOCKHOLDERS' EQUITY

HP repurchases shares of its common stock under a systematic program to
manage the dilution created by shares issued under employee stock plans and a
separate incremental plan authorizing purchases in the open market or in private
transactions. During the third quarter of fiscal 2000, 12.6 million shares were
repurchased under these plans for an aggregate price of $1.5 billion. In the
first nine months of fiscal 2000, 31.3 million shares were repurchased for an
aggregate price of $3.8 billion. The Board of Directors authorized an additional
$2.0 billion in repurchases under these two programs in the aggregate in
November 1999, and an additional $2.0 billion in May 2000. As of July 31, 2000,
HP had remaining authorization for future repurchases under the two programs of
approximately $1.7 billion.

NOTE 11: COMPREHENSIVE INCOME

Comprehensive income includes net earnings as well as other comprehensive
income. HP's other comprehensive income consists of unrealized gains and losses
on available-for-sale securities. Comprehensive income for the periods ended
July 31, 2000 was as follows:

<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
JULY 31, 2000 JULY 31, 2000
---------------- ---------------
(IN MILLIONS)
<S> <C> <C>
Net earnings.................................. $1,046 $2,775
Change in net unrealized gain (loss) on
available-for-sale securities, net of
taxes....................................... (73) 51
------ ------
Comprehensive income.......................... $ 973 $2,826
====== ======
</TABLE>

Comprehensive income for the three- and nine-month periods ended July 31,
1999 consisted of net earnings only.

10
<PAGE>
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

NOTE 12: SUPPLEMENTAL CASH FLOW INFORMATION

<TABLE>
<CAPTION>
NINE MONTHS
ENDED JULY 31,
----------------------
2000 1999
-------- --------
(IN MILLIONS)
<S> <C> <C>
Cash paid for income taxes, net............................ 818 1,488
Cash paid for interest..................................... 104 140
Non-cash transactions
Issuance of common stock for employee benefit plans:
Restricted stock......................................... (88) 156
Employer matching contributions for TAXCAP and employee
stock benefit plans.................................... 61 100
</TABLE>

NOTE 13: SEGMENT INFORMATION

HP is a leading global provider of computing and imaging solutions and
services for business and home and is focused on capitalizing on the
opportunities of the Internet and the emergence of next-generation appliances,
e-services and infrastructure. As of July 31, 2000, HP organized its operations
into three major businesses: Imaging and Printing Systems, Computing Systems and
IT Services.

In the second and third quarters of fiscal 2000, HP made certain strategic
changes to its organizational structure. These changes included the movement of
our appliances business from the Computing Systems segment to a separate
operating segment, and the movement of the majority of our services business
related to imaging and printing from the Imaging and Printing Systems segment to
our IT Services segment. The appliances operating segment is now included in
"All Other" as it does not meet the materiality threshold for a reportable
segment. Segment financial data for the three- and nine-month periods ended
July 31, 2000 and 1999 has been restated to reflect these organizational
changes.

The results of the reportable segments are derived directly from HP's
management reporting system. These results are based on HP's method of internal
reporting and are not necessarily in conformity with generally accepted
accounting principles. Management measures the performance of each segment based
on several metrics, including earnings from operations. These results are used,
in part, to evaluate the performance of, and allocate resources to, each of the
segments.

11
<PAGE>
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

NOTE 13: SEGMENT INFORMATION (CONTINUED)
The table below presents selected financial information for each continuing
reportable segment:

<TABLE>
<CAPTION>
IMAGING AND
PRINTING COMPUTING IT ALL TOTAL
SYSTEMS SYSTEMS SERVICES OTHER SEGMENTS
------------ --------- -------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
FOR THE THREE MONTHS ENDED JULY 31, 2000:
Net revenue from external customers............ $ 4,804 $ 5,051 $1,817 $321 $11,993
Intersegment net revenue....................... 1 118 1 -- 120
------- ------- ------ ---- -------
Total net revenue............................ 4,805 5,169 1,818 321 12,113
======= ======= ====== ==== =======
Earnings (loss) from operations................ $ 613 $ 379 $ 178 $(33) $ 1,137
======= ======= ====== ==== =======

FOR THE THREE MONTHS ENDED JULY 31, 1999:
Net revenue from external customers............ $ 4,185 $ 4,468 $1,536 $206 $10,395
Intersegment net revenue....................... 9 160 15 2 186
------- ------- ------ ---- -------
Total net revenue............................ 4,194 4,628 1,551 208 10,581
======= ======= ====== ==== =======
Earnings (loss) from operations................ $ 371 $ 341 $ 125 $(18) $ 819
======= ======= ====== ==== =======

FOR THE NINE MONTHS ENDED JULY 31, 2000:
Net revenue from external customers............ $14,987 $14,947 $5,211 $866 $36,011
Intersegment net revenue....................... 4 282 43 69 398
------- ------- ------ ---- -------
Total net revenue............................ 14,991 15,229 5,254 935 36,409
======= ======= ====== ==== =======
Earnings (loss) from operations................ $ 2,011 $ 745 $ 495 $(56) $ 3,195
======= ======= ====== ==== =======

FOR THE NINE MONTHS ENDED JULY 31, 1999:
Net revenue from external customers............ $13,336 $12,840 $4,574 $649 $31,399
Intersegment net revenue....................... 33 418 45 5 501
------- ------- ------ ---- -------
Total net revenue............................ 13,369 13,258 4,619 654 31,900
======= ======= ====== ==== =======
Earnings (loss) from operations................ $ 1,652 $ 702 $ 453 $(42) $ 2,765
======= ======= ====== ==== =======

ASSETS:
As of July 31, 2000............................ $ 6,798 $ 6,264 $7,885 $369 $21,316
======= ======= ====== ==== =======
As of October 31, 1999......................... $ 7,150 $ 5,846 $7,100 $250 $20,346
======= ======= ====== ==== =======
</TABLE>

12
<PAGE>
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

(UNAUDITED)

NOTE 13: SEGMENT INFORMATION (CONTINUED)
The following is a reconciliation of segment information to HP consolidated
totals:

<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JULY 31, JULY 31,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C>
NET REVENUE:
Total segments.......................................... $12,113 $10,581 $36,409 $31,900
Financing interest income reclassification.............. (97) (77) (268) (220)
Elimination of intersegment net revenue and other....... (198) (186) (622) (672)
------- ------- ------- -------
Total HP consolidated................................. $11,818 $10,318 $35,519 $31,008
======= ======= ======= =======
Earnings from continuing operations before taxes:
Total segment earnings from operations.................. $ 1,137 $ 819 $ 3,195 $ 2,765
Net financing interest reclassification................. (42) (34) (120) (96)
Interest income and other, net.......................... 276 204 649 547
Interest expense........................................ (60) (45) (156) (137)
Corporate and unallocated costs, and eliminations....... (3) 2 (141) 110
------- ------- ------- -------
Total HP consolidated................................. $ 1,308 $ 946 $ 3,427 $ 3,189
======= ======= ======= =======
</TABLE>

<TABLE>
<CAPTION>
JULY 31, 2000 OCTOBER 31, 1999
------------- ----------------
(IN MILLIONS)
<S> <C> <C>
ASSETS:
Total segments.............................................. $21,316 $20,346
Assets not allocated to segments:
Cash and cash equivalents................................. 4,842 5,411
Short-term investments and long-term investments in debt
securities.............................................. 1,118 1,192
Other corporate........................................... 5,181 4,815
------- -------
Total assets from continuing operations..................... 32,457 31,764
Net assets of discontinued operations....................... -- 3,533
------- -------
Total HP consolidated..................................... $32,457 $35,297
======= =======
</TABLE>

14: SUBSEQUENT EVENT

On September 11, 2000, HP confirmed published reports that HP is currently
in discussions with PricewaterhouseCoopers (PwC) with respect to a possible
acquisition by HP of PwC's global management and information technology
consulting practice. Terms of the transaction have not been agreed upon, and
significant issues remain to be resolved, but the parties are contemplating a
cash-and-stock acquisition in the $17 billion to $18 billion range. There can be
no assurances that discussions with PwC will result in any transaction or on
what terms a transaction may take place.

PwC are HP's independent accountants, and assuming the parties proceed with
a transaction, it is expected that the audit engagement will be terminated in
light of auditor independence requirements.

13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (UNAUDITED)

HEWLETT-PACKARD COMPANY AND SUBSIDIARIES

THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS AND THE RELATED NOTES THAT APPEAR ELSEWHERE IN
THIS DOCUMENT.

THIS DOCUMENT CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS,
UNCERTAINTIES AND ASSUMPTIONS THAT, IF THEY NEVER MATERIALIZE OR PROVE
INCORRECT, COULD CAUSE THE RESULTS OF HP AND ITS CONSOLIDATED SUBSIDIARIES TO
DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING
STATEMENTS. ALL STATEMENTS OTHER THAN STATEMENTS OF HISTORICAL FACT ARE
FORWARD-LOOKING STATEMENTS, INCLUDING ANY PROJECTIONS OF EARNINGS, REVENUES, OR
OTHER FINANCIAL ITEMS; ANY STATEMENTS OF THE PLANS, STRATEGIES, AND OBJECTIVES
OF MANAGEMENT FOR FUTURE OPERATIONS; ANY STATEMENTS CONCERNING PROPOSED NEW
PRODUCTS, SERVICES, OR DEVELOPMENTS; ANY STATEMENTS REGARDING FUTURE ECONOMIC
CONDITIONS OR PERFORMANCE; STATEMENTS OF BELIEF; AND ANY STATEMENT OF
ASSUMPTIONS UNDERLYING ANY OF THE FOREGOING. THE RISKS, UNCERTAINTIES AND
ASSUMPTIONS REFERRED TO ABOVE INCLUDE THE ABILITY OF HP TO RETAIN AND MOTIVATE
KEY EMPLOYEES; THE TIMELY DEVELOPMENT, PRODUCTION AND ACCEPTANCE OF NEW PRODUCTS
AND SERVICES AND THEIR FEATURE SETS; THE CHALLENGE OF MANAGING ASSET LEVELS,
INCLUDING INVENTORY; THE FLOW OF PRODUCTS INTO THIRD-PARTY DISTRIBUTION
CHANNELS; THE DIFFICULTY OF KEEPING EXPENSE GROWTH AT MODEST LEVELS WHILE
INCREASING REVENUE; AND OTHER RISKS, ASSUMPTIONS AND UNCERTAINTIES THAT ARE
DESCRIBED FROM TIME TO TIME IN HP'S SECURITIES AND EXCHANGE COMMISSION FILINGS,
INCLUDING BUT NOT LIMITED TO THE ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
OCTOBER 31, 1999 AND OTHER SUBSEQUENTLY FILED QUARTERLY REPORTS. MOREOVER, THE
POTENTIAL ACQUISITION BY HP OF PRICEWATERHOUSECOOPERS' GLOBAL MANAGEMENT AND
INFORMATION TECHNOLOGY CONSULTING PRACTICE DESCRIBED IN NOTE 14 TO THESE
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS PRESENTS ADDITIONAL RISKS,
UNCERTAINTIES AND ASSUMPTIONS, INCLUDING THE POSSIBILITY THAT HP AND PWC MAY NOT
CONSUMMATE THE ACQUISITION; THE CHALLENGE OF INTEGRATING THE PWC AND HP
CONSULTING BUSINESSES; THE POSSIBILITY THAT THE COMBINED BUSINESSES MAY FAIL TO
ACHIEVE DESIRED SYNERGIES AND THAT, AFTER THE ACQUISITION, HP AS A WHOLE AND THE
CONSULTING BUSINESS ON ITS OWN MAY FAIL TO ACHIEVE REVENUE AND PROFIT
EXPECTATIONS; AND THE DIFFICULTY FOR HP OF TRANSITIONING TO NEW INDEPENDENT
ACCOUNTANTS. HP DOES NOT INTEND TO UPDATE THESE FORWARD-LOOKING STATEMENTS.

As more fully discussed in Note 2 to the consolidated condensed financial
statements, on March 2, 1999, HP announced its intention to launch a new
company, subsequently named Agilent Technologies, through a distribution of
Agilent Technologies common stock to HP's stockholders in the form of a tax-free
spin-off. Agilent Technologies is composed of HP's former Measurement Systems
Organization, which included the test and measurement, semiconductor products,
chemical analysis and healthcare solutions businesses. Effective July 31, 1999,
HP's management and Board of Directors completed the plan of disposition for
Agilent Technologies. On November 23, 1999, Agilent Technologies completed an
initial public offering of approximately 16% of its common stock. HP distributed
substantially all of its remaining interest in Agilent Technologies through a
stock dividend to HP stockholders on June 2, 2000, resulting in the elimination
of the net assets of discontinued operations and a $4.2 billion reduction of
retained earnings. HP's consolidated financial statements for all periods
present Agilent Technologies as a discontinued business segment in accordance
with Accounting Principles Board Opinion No. 30. Unless otherwise indicated, the
following discussion relates to HP's continuing operations.

RESULTS OF OPERATIONS

Net revenue for the third quarter ended July 31, 2000 was $11.8 billion, an
increase of 15% from the same period in fiscal 1999. The increase in net revenue
was a result of solid growth across all business segments. Net revenue for the
IT Services segment grew 17% in the third quarter of 2000, compared to a year
ago, while the Imaging and Printing Systems segment increased 15% and the
Computing Systems segment grew 12%. Overall, product sales for the third quarter
increased 13%, and service revenue grew 20% over the corresponding period in
fiscal 1999. International revenue grew 16% over the prior year to

14
<PAGE>
$6.5 billion, and U.S. revenue increased 13% to $5.3 billion. Strong
international growth was fueled primarily by the economic improvement in Asia.
Fluctuations in foreign currency rates adversely impacted quarter-over-quarter
revenue growth for the company as a whole by approximately two percentage
points.

For the first nine months of fiscal 2000, net revenue was $35.5 billion, an
increase of 15% over the corresponding period of fiscal 1999, reflecting revenue
growth across all business segments. Net revenue for Computing Systems grew 15%
over the prior year, net revenue for the IT Services segment increased 14% and
the Imaging and Printing Systems segment grew 12%. Product sales for the first
nine months of 2000 increased 14% over the same period in 1999, while service
revenue grew 16%. U.S. revenue increased 14% over 1999 to $15.6 billion.
International revenue, driven by a 39% increase in Asia net revenue, grew 15% to
$19.9 billion. On a year-to-date basis, fluctuations in currency rates adversely
impacted year-over-year revenue growth for the company as a whole by
approximately two percentage points.

Costs, expenses and earnings as a percentage of net revenue were as follows:

<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED JULY 31, ENDED JULY 31,
---------------------- ----------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Cost of products sold and services............. 70.3% 70.3% 71.1% 69.7%
Research and development....................... 5.6% 6.0% 5.5% 5.9%
Selling, general and administrative............ 14.9% 16.1% 15.2% 15.4%
Earnings from operations....................... 9.2% 7.6% 8.3% 9.0%
Net earnings from continuing operations........ 8.7% 6.7% 7.4% 7.6%
</TABLE>

In March 2000, HP offered 2,500 United States employees the opportunity to
retire early and receive an enhanced payout. The purpose of the enhanced early
retirement program was to balance the work force based on HP's long-term
business strategy. All employees who were offered the right to participate in
the program were required to accept the offer by April 20, 2000, and
approximately 1,300 employees accepted the offer. In the second quarter of
fiscal 2000, the cost of the enhanced payout of approximately $100 million was
recorded upon employee acceptance of the offer. This charge consisted of
approximately $37 million classified as cost of products sold and services and
approximately $63 million classified as operating expenses ($16 million in
research and development expense and $47 million in selling, general and
administrative expense). In the third quarter of fiscal 2000, HP realized
related pension settlement gains of approximately $17 million as the pension
obligations to employees were fully settled. Additional pension settlements
gains of approximately $11 million are expected to be realized in the fourth
quarter of fiscal 2000.

Cost of products sold and services as a percentage of net revenue was 70.3%
in both the third quarter of fiscal 2000 and fiscal 1999. Cost of products sold
and services was 71.1% for the first nine months of fiscal 2000, compared to
69.7% in the first nine months of 1999. As discussed above, a portion of the
charges related to our enhanced early retirement program were included in the
cost of products sold and services in the second quarter of fiscal 2000. These
charges net of related pension settlement gains had a minimal impact on the cost
of products sold and services for both the quarter and the nine months ended
July 31, 2000. Cost of products sold and services as a percentage of revenue
remained flat in the third quarter of fiscal 2000 compared to the corresponding
period of fiscal 1999, reflecting an increase in the cost of sales ratio for the
Computing Systems segment offset by a decrease in the cost of sales ratio for
the Imaging and Printing Systems segment. The 1.4% increase in cost of products
sold and services as a percentage of net revenue for the first nine months of
fiscal 2000 compared to the same period of fiscal 1999 resulted primarily from
increases in such costs in the Computing Systems segment. HP expects cost of
products sold and services as a percentage of net revenue to increase slightly
in future quarters due to continued competitive pricing pressures and changes in
product mix.

Total operating expenses, composed of research and development and selling,
general and administrative expenses, were $2.4 billion for the third quarter of
2000, an increase of 6% over the third quarter of fiscal 1999. In the third
quarter of fiscal 2000, HP realized pension settlement gains related to

15
<PAGE>
the early retirement program discussed above. In addition, HP recognized a lower
amount of stock appreciation rights expense and incurred lower costs to effect
the spin-off of Agilent Technologies in continuing operations as compared to the
third quarter of fiscal 1999. Adjusted for the pension settlement gains, the
incremental effect of stock appreciation rights expense and the incremental
effect of spin-off costs, operating expense growth for the third quarter of 2000
would have been 9% compared to the same period in 1999. The spin-off costs
included in continuing operations in the third quarter of fiscal 2000 consisted
primarily of retention incentives given to continuing HP employees involved in
effecting the transaction; the remaining spin-off costs for this period were
included in net earnings from discontinued operations. However, in the third
quarter of fiscal 1999, all costs related to the Agilent spin-off were included
in HP continuing operations as these costs were incurred prior to the July 31,
1999 measurement date for discontinued operations accounting.

Operating expenses were $7.3 billion for the first nine months of 2000, an
11% increase over the first nine months of 1999. For the first nine months of
2000, HP incurred charges (net of pension settlement gains) related to the early
retirement program in addition to higher stock appreciation rights expense and
increased spin-off costs as compared to the same period of 1999. After adjusting
for these charges, the operating expense growth for the first nine months of
fiscal 2000 would have been 9%.

Research and development expense grew 7% in the third quarter and 6% for the
first nine months of fiscal 2000 over the prior year due primarily to an
increase in spending that reflects our continuing investment in design and
development of new technologies in computing systems, imaging and printing
systems and digital media. Selling, general and administrative expenses
increased 6% in the third quarter and 13% in the first nine months of fiscal
2000 over the corresponding periods in fiscal 1999. Adjusted for the net costs
of the early retirement program, the incremental effect of stock appreciation
rights and the incremental effect of costs related to the Agilent Technologies
spin-off, selling, general and administrative expenses increased 9% in the third
quarter and 11% in the first nine months of fiscal 2000. The adjusted growth for
both the three- and nine-month periods was attributable to higher selling
expenses to support business growth and increased marketing expenses to support
our corporate branding initiative and e-services strategy.

Interest income and other, net, increased $72 million in the third quarter
of fiscal 2000 compared to the same period in 1999 and increased $102 million in
the first nine months of fiscal 2000 over the 1999 period. The increase in both
the three- and nine- month periods was attributable primarily to gains on the
sale of equity investments, an increase in interest income associated with
higher average cash and investment balances, and gains related to hedges of
foreign currency denominated assets and liabilities.

HP's effective tax rate was 23% for the first nine months of fiscal 2000,
reflecting the tax rate expected for the full fiscal year. The tax rate was
21.3% in the third quarter of 2000 due to a reduction in the annual effective
tax rate from 24% to 23%. In 1999, the full-year effective tax rate was 26%, and
the rate was 26.5% in both the third quarter and first nine months of the year.
The year-to-year decrease in HP's effective tax rate was primarily the result of
changes in the mix of our pre-tax earnings in various tax jurisdictions
thoughout the world.

In the third quarter of fiscal 2000, net earnings from continuing operations
increased 48% to $1,029 million from $696 million for the third quarter of
fiscal 1999. As a percentage of net revenue, net earnings from continuing
operations was 8.7% in the third quarter of 2000, compared with 6.7% in the same
quarter in fiscal 1999. For the first nine months of 2000, net earnings from
operations increased 13% to $2,639 million from $2,344 million in 1999. As a
percentage of net revenue, net earnings from continuing operations for the
nine-month period decreased to 7.4% in 2000 from 7.6% in the same period in
1999.

16
<PAGE>
estimated net costs to effect the spin-off were $151 million (net of related tax
benefit of $23 million). Net earnings from discontinued operations for the third
quarter and first nine months of fiscal 1999 consisted only of the net earnings
of Agilent Technologies. See Note 2 to these consolidated condensed financial
statements for further information.

SEGMENT INFORMATION

The following is a discussion of operating results for each of HP's business
segments. A description of products and services for each segment can be found
in the notes to the consolidated financial statements in the Hewlett-Packard
Company 1999 Annual Report on Form 10-K. Quarterly financial data for each
segment can be found in Note 13 to these consolidated condensed financial
statements. The financial data for the 1999 periods and the first six
months of 2000 have been restated to reflect changes in HP's organizational
structure that occurred during the second and third quarters of fiscal 2000.
These changes are more fully described in Note 13 to the consolidated condensed
financial statements. The reportable segments disclosed in this Form 10-Q are
based on HP's management organizational structure as of July 31, 2000. Future
changes to this organizational structure may result in changes to the reportable
segments disclosed.

IMAGING AND PRINTING SYSTEMS

<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED JULY 31, ENDED JULY 31,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Net revenue............................... $4,805 $4,194 $14,991 $13,369
Earnings from operations.................. $ 613 $ 371 $ 2,011 $ 1,652
</TABLE>

Imaging and Printing Systems' net revenue grew 15% for the quarter ended
July 31, 2000 compared to the same period in 1999. For the first nine months of
fiscal year 2000, Imaging and Printing's net revenue increased 12% over the 1999
period. Net revenue growth in both the three-and nine-month periods was driven
primarily by strong sales of printer supplies. Solid growth in home printer
hardware, which also contributed to the increase, was partially offset by a
decline in office printer hardware revenue. In addition, unfavorable foreign
currency effects, particularly in Europe, moderated the segment's revenue growth
in both the three- and nine-month periods.

Net revenue growth in printer supplies in both the third quarter and the
first nine months of fiscal 2000 reflected continued growth in the installed
base and higher usage rates. Net revenue growth in home printer hardware was
driven by excellent unit growth in HP Photosmart and all-in-one products.
Despite solid unit growth in DeskJet printers, which expanded the installed
base, revenue was relatively flat in both the three- and nine-month periods due
to declines in average selling prices. Particularly in the third quarter of
fiscal 2000, revenue growth in the home printer category benefited from a mix of
relatively stronger sales of PhotoSmart and all-in-one products as compared to
sales of lower-priced DeskJet printers. Partially offsetting the revenue
increases in printer supplies and home printer hardware was a decline in office
products' revenue, as strong growth in color laser printers did not fully offset
the expected decline in monochrome laser sales.

Earnings from operations as a percentage of net revenue was 12.8% for the
quarter ended July 31, 2000, compared to 8.8% for the same period in 1999. For
the first nine months of the year, earnings from operations was 13.4% in fiscal
2000, compared to 12.4% in 1999. Overall, there was an improvement in gross
margins in the third quarter of fiscal 2000 compared to 1999; however, gross
margins declined slightly for the year-to-date period in 2000. In the third
quarter and first nine months of fiscal 2000, gross margins were favorably
impacted by economies of scale from increased production levels in printer
supplies. In the first nine months of fiscal 2000, this increase in gross
margins was more than fully offset by a shift toward lower-margin home printers
and higher component costs related to the strong Japanese yen. These

17
<PAGE>
negative effects also partially offset gross margin improvements in the third
quarter of 2000 compared to 1999. In addition, strong operating expense
management benefited the earnings from operations ratios for both the three- and
nine-month periods.

COMPUTING SYSTEMS

<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED JULY 31, ENDED JULY 31,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Net revenue............................... $5,169 $4,628 $15,229 $13,258
Earnings from operations.................. $ 379 $ 341 $ 745 $ 702
</TABLE>

Computing Systems' net revenue increased 12% for the quarter ended July 31,
2000 compared to the same period in 1999. For the first nine months of fiscal
2000, Computing Systems' net revenue increased 15% over the 1999 period. Strong
performance in home and notebook PCs and solid sales in
UNIX-Registered Trademark-(1) server products drove the overall growth in both
the three- and nine-month periods of 2000. This growth was partially offset by
declining business desktop PC sales. The nine-month period was also unfavorably
impacted by the continued effects of the transition to a new enterprise storage
strategy. However, enterprise storage revenues in the third quarter of fiscal
2000 increased as compared to the same period in fiscal 1999.

In both the three- and nine-month periods of fiscal 2000 compared to the
1999 periods, Computing Systems' net revenue growth benefited from very strong
unit shipments of home and notebook PCs which was partially offset by lower
average selling prices as a result of competitive pressures. Growth in home PCs
was driven by favorable acceptance of new products launched in the first quarter
of fiscal 2000 aided by the exit of two major competitors from the retail
market. Notebook PCs continued to benefit from strong sales of the base
portfolio as well as growth in the retail notebook line. In addition, excellent
performance in entry-level UNIX-Registered Trademark-(1) servers favorably
impacted revenue in the third quarter and first nine months of 2000. Mid-range
UNIX-Registered Trademark-(1) servers experienced solid growth in the first and
second quarters of fiscal 2000 compared to the 1999 periods; however, revenue in
the third quarter of 2000 grew slightly when compared to 1999 as we began volume
shipping our new mid-range server in the third quarter of 1999. High-end
UNIX-Registered Trademark-(1) servers posted good growth in the first quarter of
fiscal 2000, but sales declined in the second and third quarters compared to the
corresponding quarters of 1999. We believe this decline was attributable to
customer anticipation of a new high-end server that we introduced subsequent to
the end of the third quarter of fiscal 2000. Revenue growth in the third quarter
and first nine months of 2000 was partially offset by the declining revenue
performance of business desktop PCs due to component shortages and declining
average selling prices.

Earnings from operations as a percentage of net revenue was 7.3% for the
quarter ended July 31, 2000, compared to 7.4% for the same period in 1999. For
the first nine months of the year, earnings from operations as a percentage of
net revenue was 4.9% in 2000, compared to 5.3% in 1999. These slight decreases
in the earnings from operations ratios were attributable to higher memory costs
for business desktop PCs and PC servers during the first quarter, as well as the
shift to lower-margin products and declines in average selling prices,
particularly in home and notebook PCs, for both the three- and nine-month
periods. These margin declines were partially offset by a shift towards
higher-margin UNIX-Registered Trademark-(1) server and enterprise storage
products, as well as lower operating expenses as a percentage of net revenue due
to improved operational efficiencies. The increased profitability in our
UNIX-Registered Trademark-(1) business was driven by customer demand for richer
configurations in low-end and mid-range servers.

------------------------

(1) UNIX is a registered trademark of the Open Group.

18
<PAGE>
IT SERVICES

<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED JULY 31, ENDED JULY 31,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Net revenue................................. $1,818 $1,551 $5,254 $4,619
Earnings from operations.................... $ 178 $ 125 $ 495 $ 453
</TABLE>

IT Services' net revenue increased 17% in the third quarter and 14% in the
first nine months of 2000 compared to the same periods in 1999. The net revenue
growth in the third quarter was driven primarily by strong performance in
consulting services and continued growth in customer support, including mission
critical and networking services, and our financing business. The increase in
net revenue for the first nine months of fiscal 2000 was fueled by solid growth
in customer support and financing. Additionally, IT Services' overall growth in
the nine-month period reflected strength in the UNIX-Registered Trademark-(1)
business through an increase in support contracts and customer financing
arrangements. Overall growth was also favorably impacted by increased revenues
from sales of complementary third party products delivered with sales of HP
solutions in both the third quarter and year-to-date period.

Earnings from operations as a percentage of net revenue was 9.8% for the
third quarter of 2000, which is up from 8.1% for the same period in 1999. For
the first nine months of 2000, earnings from operations decreased to 9.4% from
9.8% in 1999. Improvements in our cost of products sold and services for the
services and support businesses favorably impacted the earnings from operations
ratio in the third quarter of fiscal 2000. These margin improvements resulted
from improved consulting engagement cost management and greater leverage in
customer support and outsourcing. In addition, both the three- and nine-month
periods of fiscal 2000 were unfavorably impacted by lower margins on our
complementary products business and an increase in consulting hiring to support
future growth.

LIQUIDITY AND CAPITAL RESOURCES

Our financial position remained strong, with cash and cash equivalents and
short-term investments of $5.1 billion at July 31, 2000, compared to $5.6
billion at October 31, 1999. During the first nine months of fiscal 2000, cash
flows from operating activities were used primarily to fund repurchases of our
common stock and purchase property, plant and equipment.

Cash flows from operating activities were $2.8 billion during the first nine
months of fiscal 2000 compared to $2.4 billion for the corresponding period of
fiscal 1999. The increase in cash flows from operating activities in the first
nine months of fiscal 2000 resulted primarily from increased profitability and
improved asset management.

Inventory as a percentage of net revenue declined to 11.9% at July 31, 2000
from 12.2% at July 31, 1999 and increased from 11.5% at October 31, 1999. The
increase in the ratio compared to October 1999 was planned in anticipation of
heavy seasonal demand in the fourth quarter. Trade and financing receivables as
a percentage of net revenue were 16.6%, up slightly from 16.4% at July 31, 1999,
but down significantly from 18.5% at year-end. The ratio at year-end reflected a
relatively high level of receivables due to seasonal fluctuations.

Capital expenditures for the first nine months of fiscal 2000 were $1.2
billion, compared to $757 million for the corresponding period in fiscal 1999.
Net property, plant and equipment as a percentage of net revenue was 9.4% at
July 31, 2000 compared to 10.9% at July 31, 1999 and 10.2% at October 31, 1999.
This decline reflects our continuing effort to streamline operations through
outsourcing

------------------------

(1) UNIX is a registered trademark of the Open Group.

19
<PAGE>
and consolidating activities, improving space utilization and reducing asset
intensity to build flexibility into our balance sheet.

We invest excess cash in short- and long-term investments, depending on our
projected cash needs for operations, capital expenditures and other business
purposes. We also supplement our internally generated cash flow with a
combination of short- and long-term borrowings. Short- and long-term borrowings
in the first nine months of fiscal 2000 increased by $146 million. Long-term
debt totaling $355 million matured as scheduled in the first nine months of
fiscal 2000. At July 31, 2000, we had an unused committed borrowing facility in
place totaling $1.0 billion.

In March 2000, we filed a shelf registration statement with the Securities
and Exchange Commission to register $3.0 billion of debt securities, common
stock, preferred stock, depositary shares and warrants. This registration
statement was declared effective on March 17, 2000. On June 6, 2000, we offered
under the registration statement $1.5 billion of unsecured 7.15% Global Notes
which mature June 15, 2005, unless previously redeemed. This offering closed on
June 9, 2000. The net proceeds of $1,490 million from the sale of the Notes were
used for general corporate purposes, which included repayment of existing
indebtedness, capital expenditures and meeting working capital needs. We have
the capacity to issue an additional $1.5 billion of securities under the shelf
registration statement.

We repurchase shares of our common stock under a systematic program to
manage the dilution created by shares issued under employee stock plans and a
separate incremental plan authorizing purchases in the open market or in private
transactions. During the third quarter of fiscal 2000, we repurchased
12.6 million shares under these plans for an aggregate price of $1.5 billion. In
the first nine months of fiscal 2000, we repurchased 31.3 million shares for
$3.8 billion. In fiscal 1999, we repurchased 1.8 million shares for
$163 million in the third quarter, and we repurchased 12.7 million shares for a
total of $891 million in the first nine months of the year. The Board of
Directors authorized an additional $2.0 billion in repurchases under these two
programs in the aggregate in November 1999, and an additional $2.0 billion in
May 2000. As of July 31, 2000, we had remaining authorization for future
repurchases under the two programs of approximately $1.7 billion.

In November 1999, Agilent Technologies completed an initial public offering
of approximately 16% of its common stock and distributed the net proceeds of
approximately $2.1 billion to HP. HP provided initial funding in November 1999
to Agilent Technologies and retained certain assets and liabilities of Agilent
Technologies as of November 1, 1999 which were subsequently liquidated. The
aggregate impact of these transactions resulted in cash flows from discontinued
operations of approximately $1.0 billion and an increase in additional
paid-in-capital of approximately $1.4 billion. We distributed substantially all
of our remaining interest in Agilent Technologies through a stock dividend to HP
stockholders on June 2, 2000, resulting in the elimination of the net assets of
discoutinued operations and a $4.2 billion reduction of retained earnings.

FACTORS THAT COULD AFFECT FUTURE RESULTS

COMPETITION. We encounter aggressive competition in all areas of our
business. We have numerous competitors, ranging from some of the world's largest
corporations to many relatively small and highly specialized firms. We compete
primarily on the basis of technology, performance, price, quality, reliability,
distribution and customer service and support. Product life cycles are short. To
remain competitive, we must be able to develop new products, services and
support and periodically enhance our existing products, services and support. In
particular, we anticipate that we will have to continue to lower the prices of
many of our products, services and support to stay competitive and effectively
manage financial returns with resulting reduced gross margins. In some of our
markets, we may not be able to compete successfully against current and future
competitors, and the competitive pressures we face could harm our business and
prospects.

20
<PAGE>
NEW PRODUCT AND SERVICE INTRODUCTIONS. If we cannot continue to rapidly
develop, manufacture and market innovative products and services that meet
customer requirements for performance and reliability, we may lose market share
and our future revenue and earnings may suffer. The process of developing new
high technology products and services is complex and uncertain. We must
accurately anticipate customers' changing needs and emerging technological
trends. We consequently must make long-term investments and commit significant
resources before knowing whether our predictions will eventually result in
products that the market will accept. After a product is developed, we must be
able to manufacture sufficient volumes quickly at low enough costs. To do this
we must accurately forecast volumes, mix of products and configurations.
Additionally, the supply and timing of a new product or service must match
customers' demand and timing for the particular product or service. Given the
wide variety of systems, products and services that HP offers, the process of
planning production and managing inventory levels becomes increasingly
difficult.

RELIANCE ON THIRD PARTY DISTRIBUTION CHANNELS AND INVENTORY MANAGEMENT. We
use third-party distributors to sell our products, especially printers and
personal computers, in order to accommodate changing customer preferences. As a
result, the financial soundness of our wholesale and retail distributors, and
our continuing relationships with these distributors, are important to HP's
success. Some of these distributors may have insufficient financial resources
and may not be able to withstand changes in business conditions. Our revenue and
earnings could suffer if our distributors' financial condition or operations
weaken or if our relationships with them deteriorate.

Additionally, inventory management becomes increasingly complex as we
continue to sell a significant mix of products through distributors. Third party
distributors constantly adjust their product orders from us in response to:

- The supply of our and our competitors' products available to the
distributor,

- The timing of new product introductions and relative features of the
products, and

- Seasonal fluctuations in end-user demand, such as back-to-school and
holiday buying.

Distributors may increase orders during times of product shortages, cancel
orders if their inventory is too high or delay orders in anticipation of new
products. If we have excess inventory, we may have to reduce our prices and
write down inventory, which in turn could result in lower gross margins.

SHORT PRODUCT LIFE CYCLES. The short life cycles of many of our products
pose a challenge for us to manage effectively the transition from existing
products to new products. If we do not manage the transition effectively, our
revenue and earnings could suffer. Among the factors that make a smooth
transition from current products to new products difficult are delays in product
development or manufacturing, variations in product costs and delays in customer
purchases of existing products in anticipation of new product introductions. Our
revenue and earnings could also suffer due to the timing of product or service
introductions by our suppliers and competitors. This is especially true when a
competitor introduces a new product just before our own product introduction.
Further, our new products may replace or compete with certain of our own current
products.

INTELLECTUAL PROPERTY. We generally rely upon patent, copyright, trademark
and trade secret laws in the United States and in certain other countries, and
agreements with our employees, customers and partners, to establish and maintain
our proprietary rights in our technology and products. However, any of our
intellectual proprietary rights could be challenged, invalidated or
circumvented. Our intellectual property may not necessarily provide significant
competitive advantages. Also, because of the rapid pace of technological change
in the information technology industry, many of our products rely on key
technologies developed by third parties, and we may not be able to continue to
obtain licenses from these third parties. Third parties may claim that we are
infringing their intellectual property. Even if we do not believe that our
products are infringing third parties' intellectual property rights, the claims
can be

21
<PAGE>
time-consuming and costly to defend and divert management's attention and
resources away from our business. Claims of intellectual property infringement
might also require us to enter into costly royalty or license agreements. If we
cannot or do not license the infringed technology or substitute similar
technology from another source, our business could suffer.

RELIANCE ON SUPPLIERS. Our manufacturing operations depend on our
suppliers' ability to deliver quality components and products in time for us to
meet critical manufacturing and distribution schedules. We sometimes experience
a short supply of certain component parts as a result of strong demand in the
industry for those parts. If shortages or delays persist, our operating results
could suffer until other sources can be developed. In order to secure components
for the production of new products, at times we make advance payments to
suppliers, or we may enter into non-cancelable purchase commitments with
vendors. If the prices of these component parts then decrease after we have
entered into binding price agreements, our earnings could suffer. Further, we
may not be able to secure enough components at reasonable prices to build new
products in a timely manner in the quantities and configurations needed.
Conversely, a temporary oversupply of these parts could also adversely affect
our operating results.

INTERNATIONAL. Sales outside the United States make up more than half of
our revenues. A portion of our product and component manufacturing, along with
key suppliers, are also located outside of the United States. Our future
earnings or financial position could be adversely affected by a variety of
international factors, including:

- Changes in a country or region's political or economic conditions,

- Trade protection measures,

- Import or export licensing requirements,

- The overlap of different tax structures,

- Unexpected changes in regulatory requirements,

- Differing technology standards,

- Problems caused by the conversion of various European currencies to the
Euro (see "Adoption of the Euro" section below), and

- Natural disasters.

MARKET RISK. We are exposed to foreign currency exchange rate risk inherent
in our sales commitments, anticipated sales and assets and liabilities
denominated in currencies other than the U.S. dollar. We are also exposed to
interest rate risk inherent in our debt and investment portfolios. Our risk
management strategy uses derivative financial instruments, including forwards,
swaps and purchased options, to hedge certain foreign currency and interest rate
exposures. Our intent is to offset gains and losses that occur on the underlying
exposures, with gains and losses on the derivative contracts hedging these
exposures. We do not enter into derivatives for trading purposes. We are also
exposed to equity securities price risk on our portfolio of marketable equity
securities. We typically do not attempt to reduce or eliminate our market
exposure on these securities. See also the "Financial Instruments--Off-Balance-
Sheet Foreign Exchange Risk" and "Borrowings" notes to the consolidated
financial statements in the Hewlett-Packard Company 1999 Annual Report on
Form 10-K for more detailed information.

We have performed a sensitivity analysis assuming a hypothetical 10% adverse
movement in foreign exchange rates applied to the hedging contracts and
underlying exposures described above, and a hypothetical 10% adverse movement in
interest rates applied to our debt and investment portfolios. As of July 31,
2000 and October 31, 1999, the analysis indicated that these hypothetical market
movements would not have a material effect on HP's consolidated financial
position, results of operations or cash flows. Actual gains and losses in the
future may differ materially from that analysis, however, based on

22
<PAGE>
changes in the timing and amount of interest rate and foreign currency exchange
rate movements and HP's actual exposures and hedges.

ACQUISITIONS, STRATEGIC ALLIANCES, JOINT VENTURES AND DIVESTITURES. In the
normal course of business, HP frequently engages in discussions with third
parties relating to possible acquisitions, strategic alliances, joint ventures
and divestitures. Although completion of any one transaction may not have a
material effect on our financial position, results of operations or cash flows
taken as a whole, it may contribute to our financial results differing from the
investment community's expectations in a given quarter. Divestiture of a part of
our business may result in the cancellation of orders and charges to earnings.
Acquisitions and strategic alliances may require us to integrate with a
different company culture, management team and business infrastructure. We may
also have to develop, manufacture and market products with our products in a way
that enhances the performance of the combined business or product line.
Depending on the size and complexity of an acquisition, our successful
integration of the entity into HP depends on a variety of factors, including:

- The hiring and retention of key employees,

- Management of facilities and employees in separate geographic areas, and

- The integration or coordination of different research and development and
product manufacturing facilities.

All of these efforts require varying levels of management resources, which
may divert our attention from other business operations.

EARTHQUAKE. Our corporate headquarters, a portion of our research and
development activities, other critical business operations and certain of our
suppliers are located near major earthquake faults. The ultimate impact on HP,
our significant suppliers and our general infrastructure is unknown, but
operating results could be materially adversely affected in the event of a major
earthquake. We are predominantly uninsured for losses and interruptions caused
by earthquakes.

ENVIRONMENTAL. Some of our operations use substances regulated under
various federal, state and international laws governing the environment. It is
our policy to apply strict standards for environmental protection to sites
inside and outside the U.S., even when not subject to local government
regulations. We record a liability for environmental remediation and related
costs when we consider the costs to be probable and the amount of the costs can
be reasonably estimated. Environmental costs are presently not material to our
results of operations or financial position.

PROFIT MARGIN. Our profit margins vary somewhat among our products,
customer groups and geographic markets. Consequently, our overall profitability
in any given period is partially dependent on the product, customer and
geographic mix reflected in that period's net revenue.

STOCK PRICE. HP's stock price, like that of other technology companies, can
be volatile. Some of the factors that can affect our stock price are:

- Our, or a competitor's, announcement of new products, services or
technological innovations,

- Quarterly increases or decreases in our earnings,

- Changes in revenue or earnings estimates by the investment community, and

- Speculation in the press or investment community about our financial
condition or results of operations.

General market conditions and domestic or international macroeconomic
factors unrelated to our performance may also affect HP's stock price. For these
reasons, investors should not rely on recent trends to predict future stock
prices or financial results. In addition, following periods of volatility in a
company's

23
<PAGE>
securities, securities class action litigation against a company is sometimes
instituted. This type of litigation could result in substantial costs and the
diversion of management time and resources.

EARNINGS FLUCTUATIONS. Although we believe that we have the products and
resources needed for continuing success, we cannot reliably predict future
revenue and margin trends. Actual trends may cause us to adjust our operations,
which could cause period-to-period fluctuations in our earnings.

SPIN-OFF OF AGILENT TECHNOLOGIES. On June 2, 2000, HP distributed to its
stockholders of record as of 5:00 p.m. Eastern Daylight Time on May 2, 2000,
substantially all of the common stock of Agilent Technologies owned by HP. HP
may not obtain the benefits we expect as a result of this distribution, such as
greater strategic focus on our core computing and imaging and printing
businesses. In addition, HP's consolidated financial statements do not reflect
what the financial position, results of operations and cash flows of HP would
have been had Agilent Technologies been a separate stand-alone entity during the
periods presented.

ADOPTION OF THE EURO

HP had established a dedicated task force to address the issues raised by
the introduction of a European single currency, the Euro. The Euro's initial
implementation was effective as of January 1, 1999, and the transition period
will continue through January 1, 2002. On January 1, 1999, we began converting
our product prices from local currencies to Euros as required. We implemented
system changes to give multi-currency capability to internal applications and to
ensure that external partners' systems processing Euro conversions are compliant
with the European Council regulations. In addition, we have implemented design
changes to support display and printing of the Euro character by impacted HP
products.

The introduction and use of the Euro has not had a material effect on our
foreign exchange and hedging activities or our use of derivative instruments,
and we do not presently expect that it will. All costs associated with the
conversion to the Euro are expensed to operations as incurred. While we will
continue to evaluate the impact of the Euro over time, based on currently
available information, we do not believe that the introduction of the Euro
currency will have a material adverse impact on our consolidated financial
condition, cash flows or results of operations.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

A discussion of HP's exposure to, and management of, market risk appears in
Item 2 of this Form 10-Q under the heading "Factors That Could Affect Future
Results--Market Risk."

24
<PAGE>
PART II. OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

(a) Exhibits:

A list of exhibits is set forth in the Exhibit Index found on page 27 of
this report.

(b) Reports on Form 8-K:

On May 12, 2000, HP filed a Form 8-K reporting that an information statement
regarding the spin-off of Agilent Technologies was issued on May 11, 2000. The
information statement contained descriptions of the spin-off, certain tax
consequences of the spin-off, Agilent Technologies' business and Agilent
Technologies' common stock.

On June 5, 2000, HP filed a Form 8-K reporting that a press release was
issued on June 2, 2000 which stated that the distribution of substantially all
of HP's shares of Agilent Technologies common stock had been completed.

On June 15, 2000, HP filed a Form 8-K reporting that on June 9, 2000 it had
completed an offering for $1,500,000 in 7.15% Global Notes due June 15, 2005
with interest payable on June 15 and December 15 of each year and commencing on
December 15, 2000. The purpose of the report was to file (a) the form of the
Notes as governed by the Indenture Agreement, (b) the Underwriting Agreement and
(c) the Officers' Certificate pursuant to Section 301 of the Indenture
Agreement.

25
<PAGE>
SIGNATURE

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.

<TABLE>
<S> <C> <C>
HEWLETT-PACKARD COMPANY
(REGISTRANT)

By: /s/ ROBERT P. WAYMAN
------------------------------------------------
Robert P. Wayman
EXECUTIVE VICE PRESIDENT,
FINANCE AND ADMINISTRATION AND CHIEF FINANCIAL
OFFICER
(PRINCIPAL FINANCIAL OFFICER)
</TABLE>

Dated: September 12, 2000

26
<PAGE>
HEWLETT-PACKARD COMPANY AND SUBSIDIARIES
EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------------------- -----------
<S> <C>
1 Not applicable.

2 Master Separation and Distribution Agreement between
Hewlett-Packard Company and Agilent Technologies, Inc.
effective as of August 12, 1999, which appears as exhibit 2
to Registrant's Annual Report on Form 10-K for the fiscal
year ended October 31, 1999, which exhibit is incorporated
herein by reference.

3(a) Registrant's Amended and Restated Certificate of
Incorporation, which appears as exhibit 3(a) to
Registrant's Quarterly Report on Form 10-Q for the fiscal
quarter ended April 30, 1998, which exhibit is incorporated
herein by reference.

3(b) Registrant's Amended By-Laws, which appears as exhibit 3(b)
to Registrant's Annual Report on Form 10-K for the fiscal
year ended October 31, 1999, which exhibit is incorporated
herein by reference.

4(a) Indenture dated as of October 14, 1997 among Registrant and
Chase Trust Company of California regarding Liquid Yield
Option Notes due 2017 which appears as Exhibit 4.2 to
Registrant's Registration Statement on Form S-3
(Registration No. 333-44113), which exhibit is incorporated
herein by reference.

4(b) Supplemental Indenture dated as of March 16, 2000 among
Registrant and Chase Trust Company of California regarding
Liquid Yield Option Notes due 2017.+

4(c) Form of Registrant's 7.15% Global notes due June 15, 2005
and related Officers' Certificate, which appear as
Exhibits 4.1 and 4.3 to Registrant's Form 8-K filed on
June 15, 2000, which exhibits are incorporated herein by
reference.

4(d) Senior Indenture, which appears as Exhibit 4.1 to
Registrant's Registration Statement on Form S-3 dated
February 18, 2000, as amended by Amendment No. 1 thereto
dated March 17, 2000 (Registration No. 333-30786), which
exhibit is incorporated herein by reference.

5-8 Not applicable.

9 None.

10(a) Registrant's 1985 Incentive Compensation Plan, as amended,
which appears as exhibit 10(a) to Registrant's Annual Report
on Form 10-K for the fiscal year ended October 31, 1999,
which exhibit is incorporated herein by reference.*

10(b) Registrant's 1985 Incentive Compensation Plan, as amended,
stock option agreement, which appears as exhibit 10(b) to
Registrant's Annual Report on Form 10-K for the fiscal year
ended October 31, 1999, which exhibit is incorporated herein
by reference.*

10(c) Registrant's Excess Benefit Retirement Plan, amended and
restated as of November 1, 1999.+

10(d) Registrant's 1990 Incentive Stock Option Plan, as amended,
which appears as exhibit 10(d) to Registrant's Annual Report
on Form 10-K for the fiscal year ended October 31, 1999,
which exhibit is incorporated herein by reference.*

10(e) Registrant's 1990 Incentive Stock Option Plan, as amended,
stock option agreement, which appears as exhibit 10(e) to
Registrant's Annual Report on Form 10-K for the fiscal year
ended October 31, 1999, which exhibit is incorporated herein
by reference.*

10(f) Registrant's 1995 Incentive Stock Plan, as amended, which
appears as exhibit 10(f) to Registrant's Annual Report on
Form 10-K for the fiscal year ended October 31, 1999, which
exhibit is incorporated herein by reference.*
</TABLE>

27
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------------------- -----------
<S> <C>
10(g) Registrant's 1995 Incentive Stock Plan, as amended, stock
option and restricted stock agreements, which appears as
exhibit 10(g) to Registrant's Annual Report on Form 10-K for
the fiscal year ended October 31, 1999, which exhibit is
incorporated herein by reference.*

10(h) Registrant's 1997 Director Stock Plan which appears as
exhibit 99 to Registrant's Form S-8 filed on March 7, 1997,
which exhibit is incorporated herein by reference.*

10(i) Registrant's Executive Deferred Compensation Plan, Amended
and Restated effective November 1, 1999, which appears as
exhibit 10(i) to Registrant's Annual Report on Form 10-K for
the fiscal year ended October 31, 1999, which exhibit is
incorporated herein by reference.*

10(j) VeriFone, Inc. Amended and Restated 1992 Non-Employee
Directors' Stock Option Plan which appears as exhibit 99.1
to Registrant's Form S-8 filed on July 1, 1997, which
exhibit is incorporated herein by reference.*

10(k) VeriFone, Inc. Amended and Restated Incentive Stock Option
Plan and form of agreement which appears as exhibit 99.2 to
Registrant's Form S-8 filed on July 1, 1997, which exhibit
is incorporated herein by reference.*

10(l) VeriFone, Inc. Amended and Restated 1987 Supplemental Stock
Option Plan and form of agreement which appears as
exhibit 99.3 to Registrant's Form S-8 filed on July 1, 1997,
which exhibit is incorporated herein by reference.*

10(m) Enterprise Integration Technologies Corporation 1991 Stock
Plan and form of agreement which appears as exhibit 99.4 to
Registrant's Form S-8 filed on July 1, 1997, which exhibit
is incorporated herein by reference.*

10(n) VeriFone, Inc. Amended and Restated Employee Stock Purchase
Plan which appears as exhibit 99.1 to Registrant's Form S-8
filed on July 1, 1997, which exhibit is incorporated herein
by reference.*

10(o) Registrant's 1998 Subsidiary Employee Stock Purchase Plan
and the Subscription Agreement which appear as Appendices E
and E-1 to Registrant's Proxy Statement dated January 12,
1998, respectively, which appendices are incorporated herein
by reference.*

10(p) Transition Agreement, dated May 20, 1999, between Registrant
and Lewis E. Platt which appears as exhibit 10(ee) to
Registrant's Quarterly Report on Form 10-Q for the fiscal
quarter ended July 31, 1999, which exhibit is incorporated
herein by reference.*

10(q) Employment Agreement, dated May 20, 1999, between Registrant
and Robert P. Wayman which appears as exhibit 10(ff) to
Registrant's Quarterly Report on Form 10-Q for the fiscal
quarter ended July 31, 1999, which exhibit is incorporated
herein by reference.*

10(r) Employment Agreement, dated July 17, 1999, between
Registrant and Carleton S. Fiorina which appears as
exhibit 10(gg) to Registrant's Quarterly Report on
Form 10-Q for the fiscal quarter ended July 31, 1999, which
exhibit is incorporated herein by reference.*

10(s) Executive Transition Program which appears as
exhibit 10(hh) to Registrant's Quarterly Report on
Form 10-Q for the fiscal quarter ended July 31, 1999, which
exhibit is incorporated herein by reference.*

10(t) Incentive Stock Plan Stock Option Agreement (Non-Qualified),
dated July 17, 1999, between Registrant and Carleton S.
Fiorina which appears as exhibit 10(ii) to Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended
July 31, 1999, which exhibit is incorporated herein by
reference.*

10(u) Restricted Stock Agreement, dated July 17, 1999, between
Registrant and Carleton S. Fiorina which appears as
exhibit 10(jj) to Registrant's Quarterly Report on
Form 10-Q for the fiscal quarter ended July 31, 1999, which
exhibit is incorporated herein by reference.*
</TABLE>

28
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------------------- -----------
<S> <C>
10(v) Restricted Stock Unit Agreement, dated July 17, 1999,
between Registrant and Carleton S. Fiorina which appears as
exhibit 10(kk) to Registrant's Quarterly Report on
Form 10-Q for the fiscal quarter ended July 31, 1999, which
exhibit is incorporated herein by reference.*

10(w) Registrant's 2000 Stock Plan which appears as Appendix A to
Registrant's Proxy Statement dated January 18, 2000, which
appendix is incorporated herein by reference.*

10(x) Registrant's 2000 Employee Stock Purchase Plan which appears
as Appendix B to Registrant's Proxy Statement dated
January 18, 2000, which appendix is incorporated herein by
reference.*

10(y) Registrant's Pay-for-Results Plan which appears as
Appendix C to Registrant's Proxy Statement dated
January 18, 2000, which appendix is incorporated herein by
reference.*

11 Not applicable.

12 Statement of Computation of Ratio of Earnings to Fixed
Charges.+

13-17 Not applicable.

18 None.

19-21 Not applicable.

22 None.

23-26 Not applicable.

27 Financial Data Schedule.+

28 None.

99 Not applicable.
</TABLE>

------------------------

* Indicates management contract or compensatory plan, contract or arrangement.

+ Previously Filed.